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Smaller Companies and
their Sterling Exposure


A notable by-product of the Brexit referendum has been sterling volatility. The pound has already weakened by 6% against the euro since the start of the year and should there be a vote for the UK to leave the EU, further material weakening of sterling is likely, with plenty of volatility probable in the run up to the June 23rd referendum day. 

In this context it is worth examining the actual sterling exposure of the Appian Smaller Company Opportunities Fund (ASCOF) given this is the Appian Fund with the highest proportion of UK assets. While the ASCOF’s equities have a 60% weighting towards UK quoted companies it should be noted that the actual exposure of these companies to the UK is much lower. 

Few of these companies are predominately UK focused businesses. Many are international or global businesses with significant operations outside of the UK. A number are actually non-UK corporations which have listed in London as it is a relatively attractive market for smaller companies to go public on. Consequently, the exchange rate of sterling is less of an issue for these companies – while their shares may be quoted in sterling, should sterling weaken the value of their international operations will be worth more in sterling terms.

We have analysed the underlying sales exposure of the ASCOF’s quoted companies to the UK. On a weighted average basis, the sterling exposure of the Fund’s UK companies accounts for 21.2% of the Fund’s underlying currency exposure. In addition, some of the Fund’s non-UK equities have sales into the UK – these add a further 6.1% to the Fund’s sterling exposure. Adding in the 0.6% of the Fund held in sterling cash, the overall exposure of the Fund to sterling on a look through basis, then amounts to 27.9%. While not an insignificant amount it is substantially less than the 60% suggested by the weighting in UK equities.

More fundamental to the performance of the ASCOF over time is its investment philosophy. The Fund aims to identify high quality small and mid cap companies at attractive valuations. The strategy is ‘bottom up’ and not ‘top down’. We select equities which have sustainable business models that can generate shareholder value through economic cycles. Investing in such companies at valuations which fail to recognise the true worth of these businesses forms a sound foundation to drive potential returns in the Fund over time. The sterling exposure therefore is an outcome of our process of identifying assets that best meet our criteria. While this may result in an exposure to sterling volatility over the short term, it is more important in our view that we remain committed to a disciplined investment process that has delivered for this Fund since inception and is capable of navigating the Fund through various future challenges in order to meet its long-term objectives.

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The information contained in this material is not financial advice. Nor does it constitute an offer for the purchase or sale of any financial instruments, trading strategy, product or service. No one receiving this material should treat any of its contents as constituting advice. It does not take into account the investment objectives, knowledge, experience or financial situation of any particular person. You should seek advice in the context of your own personal circumstances prior to investing or taking out any product from your own independent adviser.
 
This material has been prepared and issued by Appian Asset Management Limited on the basis of publicly available information, internally developed data and other sources believed to be reliable. While all reasonable care has been given to the preparation of the information, no warranties or representation, express or implied are given or liability accepted by Appian Asset Management Limited or its affiliates or any directors or employees in relation to the accuracy, fairness or completeness of the information contained herein. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. 

If you decide to invest in the Appian Unit Trust, further information in relation to all risks is provided in the Fund Prospectus and supplements. This material is available from Appian Asset Management Limited, 42 Fitzwilliam Place, Dublin 2. If you invest in the Appian Unit Trust, you may lose some or all of the money you invest. The value of your investment may go down as well as up. This investment may be affected by changes in currency rates. 

References to past performance are for illustrative purposes only and are not a reliable guide to future performance. Projected returns are estimates only. Forecasted returns depend on assumptions that involve subjective judgement and on analysis that may or may not be correct. 

The above disclaimer and limitations of liability are applicable to the fullest extent permitted by law, whether in Contract, Statute, Tort (including without limitation, negligence) or otherwise.
 
Appian Asset Management Limited is regulated by the Central Bank of Ireland. 
 

Appian Unit Fund Prices  
1 March 2016 
Appian Value Fund
Appian Equity Fund
Appian Small Companies Opportunities Fund
Appian Liquidity Fund
Appian Ethical Value Fund
135.82  
151.62  
174.95
106.39   
94.48

For more detailed information on each of our funds click here

Patrick J Lawless
Managing Director
Eugene Kiernan
Head of Investment Strategy
Frank O’Brien
Consultant
John Mattimoe
Head of Equity Analysis
 
Click here for more information about our Investment Team
John Flavin
Senior Relationship Manager
Tel: (01) 662 4053 direct
Click here to email John
Pat Kilduff
Senior Relationship Manager
Tel: (01) 662 3985 direct
Click here to email Pat


 
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